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13 June 2014

Holiday pay must include commission

The European Court of Justice (ECJ) has ruled that if a worker is entitled to contractual commission payments, statutory holiday pay must be calculated to include commission.

The case was brought by Mr Lock, who was employed as an energy sales consultant by British Gas Trading Ltd.  He was paid basic salary plus commission of approximately 60% of his remuneration. Commission was paid several weeks or months after the conclusion of a sale.

When Mr Lock took holiday, he was paid his basic salary as well as any commission from previous sales that happened to be received during the period of holiday. However, his income in the following months was reduced as a result of the fact that he was unable to secure any sales during his holiday.  He brought a claim in the employment tribunal on the basis that his reduced income amounted to a breach of the Working Time Regulations 1998 (WTR 1998).

The employment tribunal referred to the ECJ the question of whether the European Working Time Directive (WTD) requires a worker to be paid for periods of annual leave by reference to the commission payments he would have otherwise earned during that period. The tribunal also asked how, if so, the correct sum should be calculated.

ECJ decision

The ECJ has ruled that workers are entitled under the WTD to receive their “normal remuneration” during annual leave.  During his period of annual leave, Mr Lock was unable to generate any commission, leading to a financial disadvantage some weeks after his holiday period.  This is contrary to the objective pursued by the WTD since it is likely to deter a worker from exercising his right to take annual leave.

The Court stated that it is irrelevant that the reduction in remuneration might occur some time after the holiday period.  Since Mr Lock’s commission payments are directly and intrinsically linked to the performance of his job, commission must be inlcuded in the calculation of his statutory holiday pay.

As to the tricky question of exactly how the appropriate amount of holiday pay should be calculated in this situation, the ECJ did not provide a conclusive answer.  Instead, it stated that the method for calculating the commission element of holiday pay must be assessed by the national court or tribunal, focussing on the average commission earned over an appropriate reference period.

Comment

It will now be for the employment tribunal to consider whether or not the WTR 1998 can be interpreted in line with the ECJ’s decision. Based on previous caselaw, it is likely that it will do so.

As for the appropriate reference period over which commission will be calculated, the previously published Advocate General’s opinion in this case suggested a period of 12 months. However, we will have to await the employment tribunal’s decision to see whether this is the period adopted.

In the meantime, two cases are due to be heard at the Employment Appeal Tribunal (EAT) next month to consider whether overtime payments should also be included in the calculation of statutory holiday pay.  This recent decision of the ECJ is likely to be used in support of the argument that it should be included.

A copy of the ECJ decision is available here.

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